Confidence of the Small and Medium Enterprise (SME) sector for the last quarter of this calendar year has risen surprisingly on the upside, but SMEs are more enthusiastic about domestic sales rather than exports, according to a new CII survey.

The CII SME survey, measuring confidence of SME sector for the Oct-Dec quarter, has showed bullish outlook of the sector, with the overall BCI (Business Confidence Index) standing at a high of 67 on a scale of 0-100.

Interestingly, the findings of the new survey defy the results of another CII survey conducted only recently, which showed confidence of the Indian industry as a whole slipping, with a majority of respondents expressing concern over inflationary conditions, slackening consumer demand, cost and availability of labour and high interest rates.

Another aspect where the two surveys reflect different views is in terms of exports outlook; while the earlier survey showed 56 percent of the respondents expecting export volumes to increase in Oct-Dec quarter, the SME survey has reported less improved outlook on exports.

"Exports prospects for SMEs have come down significantly from the last quarter, which is not surprising given the slow  and uncertain economic recovery in large part of the Western globe.  Appreciating Indian rupee against US dollar is further adding to the woes of the SME exporters," mentions the survey.

On the prospects of credit availability for SMEs, the survey reports improved outlook, even though it continues to be far below to be stated as ‘most favorable’.even though it continues to be far below to be stated as ‘most favorable’.

On capacity expansion of SMEs in the quarter ending December, it cautioned with given upward pressure on interest rates, it may not be too long before credit cost starts adversely impacting the capacity expansion of this critical sector of the economy, warns the CII Survey.

Overall, however, the survey reported improved outlook of gross sales, new orders/contracts, capacity utilization, and capacity expansion – that have done exceptionally well to cross the mark of 75 on BCI scale to indicate significantly better outlook (more than 10%) from the previous quarter.

This, in turn, is also keeping the prospects of employment in the sector bright with its BCI standing at 73.6

According to the survey participants, within SMEs, the industrial sector is expected to outshine the services sector with regard to gross sales, new orders/contracts, exports, selling prices and inventory levels. In most of the other respects, including credit availability and credit cost of working capital, however, industrial sector is found to be much lacking.